Business activity in the U.S. Midwest expanded far more than expected in December, hitting its highest in nearly four years on a massive recovery in employment and accelerating new orders.

The Institute for Supply Management-Chicago said on Wednesday its business barometer rose to 60.0 from 56.1 in November, marking its highest reading since January 2006.

The result was much better than analysts' median forecast of 55.0, and was marked by an eye-popping jump in the report's gauge of employment, which has been the top worry as the economy slowly recovers from the worst recession in decades.

The number is a lot above consensus and it bodes well for continued solid expectations as far as the economy and manufacturing goes. That's going to be a vital part of 2010, said Alan Lancz, president of Alan B. Lancz & Associates in Toledo, Ohio.

Economists' forecasts ranged from 52.0 to 58.0, according to a Reuters poll.

A reading above 50 in the report, also known as the Chicago PMI, indicates expansion in the regional economy.

Reaction was muted in financial markets, where trade has been thin due to the holidays. U.S. stocks were little changed after the data.

U.S. government bonds also showed little reaction, remaining unchanged on the day. The dollar, however, extended its gains versus the euro and yen.

The Employment index vaulted to 51.2 from November's 41.9. That was its highest since November 2007 and also the first time it has been in expansionary territory since then.

Boding well for the future, the new orders index rose to 63.5 from 62.8.

(Additional reporting by Ryan Vlastelica; Editing by Dan Grebler)

Manufacturing